Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh slashed the limit of advance-deposit ratio (ADR) on Tuesday to help check any possible liquidity pressure on the market due to the banks’ ‘aggressive’ lending.

The ADR is re-fixed at 83.50 per cent for all the conventional banks and at 89 per cent for the Shariah-based Islamic banks. The existing ratios are 85 per cent and 90 per cent respectively.

The banks must adjust it gradually by June 30, according to a notification, issued by the Bangladesh Bank (BB), the country’s central bank, on the day.

The banks have been instructed to submit their specific action plans in this connection to the Department of Off-site Supervision (DOS) of the central bank by February 7, it noted.

Talking to the BBN, a senior official of the BB said the central bank will monitor the action plans to ensure implementation of the revised ADR directive within the stipulated timeframe.

He also said BB has re-fixed the ADR considering different indicators, including inter-bank dependence, classified loan situation and capital adequacy of the banks.

The central bank’s latest move came against the backdrop of credit growth at a higher rate than that of deposit in the recent months, as depositors are feeling discouraged from keeping money with the banks because of lower interest rates.

The revised ADR limited will help bring an alignment between the existing credit and deposit growths, another BB official said, adding that it will also help bringing a credit discipline in the country’s banking sector.

The growth in deposit, on a year-on-year basis, rose to around 11 per cent in November 2017 from 10.72 per cent as on October 12, 2017, according to the BB officials. All-bank deposit growth was 13.13 per cent on December 31, 2016.

On the other hand, credit growth, particularly in private sector, increased significantly in the recent months due to higher trade financing by the banks for settling import-payment obligations.

Much of the money went for financing import of fuel oil, and consumer items including food grains and capital machinery.

The all-bank credit growth rose to 19 per cent in November from 18.05 per cent as on October 12, 2017. It was 15.32 per cent in December 31, 2016.

The ADR of all banks rose to more than 75 per cent in November 2017 from 74.85 per cent as on October 12, 2017. It was 71.85 per cent as on December 31, 2016.